Niche lender Investec has increased its funding facility for the fintech accelerator H2 Ventures by $4 million, in a deal that has been partially underwritten by the NSW government, which says it is willing to provide more guarantees to encourage venture capital funding.

Deputy Premier John Barilaro said the NSW government is willing to provide similar loan guarantees in order to help early stage start-ups attract VC funding.

"Just providing grants, which have to be capped, achieves small results, but this guarantee has unlocked a $4 million loan, which is really moving the needle," said Mr Barilaro, who is also the Minister for Skills and for Small Business.

Founding Partner of H2 Ventures Ben Heap says an unlisted $30 million fund will be raised this year to seed fintech start-ups.
Quentin Jones

Under the guarantee, for which the government will charge a low rate of interest, if H2 cannot repay its loan from Investec, Investec can claim 50 per cent of any losses from the government. The guarantee has been made from the government's $190 million Jobs for NSW fund, chaired by former Telstra chief executive David Thodey.

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The NSW government's backing of the deal illustrates how fintech is becoming a strategic industry for Sydney given its deep workforce in financial services and information and communications technology. The support is also a bet that some of the new start-ups entering the accelerator will challenge incumbent banks and by becoming disrupters, will create new jobs. Mr Barilaro said he expected 400 new fintech jobs to be created as a result of the Investec loan and government guarantee.

More than 100 fintech entrepreneurs applied for the next intake of H2's accelerator, which begins in February, but only eight start-ups were chosen for the program. H2 invests $100,000 in each for a 10 per cent equity stake. The new funding will allow H2 to invest in 40 new start-ups; an additional accelerator intake will now happen mid-2017.

H2 founding partner Ben Heap said Sydney needs to attract global fintech talent from current clusters in Silicon Valley, New York and London in order to create a thriving ecosystem. "We think Sydney should become a fintech hub for the region and the world. For that to happen, we need a cohesive ecosystem all the way through. This includes globally respected co-working spaces, which Tyro and Stone & Chalk are. We are building a quality accelerator. And we need the ability to follow-on invest, which is what we are doing with H2Ocean. We want to make sure that if you have a terrific fintech idea, one of the places you think about creating your business is in Sydney."

Mr Barilaro said fintech was currently a $450 million industry but was expected to grow to $4.2 billion by 2020. "We are at the very early stages, and we want to make sure NSW and Sydney continues to be the capital for start-ups in fintech," he said.

Investec has lifted its funding of H2 by $4 million after taking a $2 million equity stake in 2016.
Quentin Jones QCJ